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The Rep and the Principal

“Byron” is one of the most prolific sales agents of telecommunications products and services in the country. He had previously served as a sales agent for a major publicly traded telecommunications industry leader.

“DCA” is a company that provides telecommunications products and services to customers in several states. Before 2010, DCA was a small company with a few million dollars of annual revenue primarily serving individuals who resided near its primary office location. It had no major corporate customers.

“Karl” and his brother “Sam” founded DCA in the 1990s. Karl and Sam had poured decades of their lives into DCA, but had received little personally for their efforts. They were eager to grow DCA and become wealthy.

In 2010, Karl and Byron were introduced. They discussed how Byron could utilize his industry experience, knowledge and connections to help grow DCA.

The Agreement

In late 2011, DCA signed a written contract called “Sales Representative Agreement” (the “Agreement”) and sent it to Byron. Under the agreement, Byron would (through his single member LLC) serve as an independent sales representative of DCA and receive sales commissions of between 16 percent and 20 percent on “all telecommunications products and services” of DCA that Byron sold to customers. Byron signed the agreement and returned it to Karl.

The agreement included some provisions very beneficial to Byron, such as these examples:

• Term: The term of the agreement is 30 years…. DCA “shall have no right to terminate this agreement early and must pay commissions to representative as specified above.”
• Geographic Territory: The agreement defined Byron’s geographic territory as “All states and territories within the United States of America/any accounts.”
• Products: The agreement defined the term “Products” as “All fiber optic, wireline, and wireless telecommunications products and services.”
• Commission Rates: DCA agreed to pay Byron 16 percent to 20 percent sales commissions on all products and services.
• Post-Termination Commissions: If the agreement terminates early for any reason, with or without cause, DCA agrees to continue to pay commissions to representative for the life of the customer’s actual payments to company.
• Independent Contractor: Byron’s LLC “is an independent contractor” of DCA.
• Fully Integrated Agreement: “The terms and conditions set forth herein constitute the entire agreement between the parties and supersede any communications or previous agreements with respect to the subject matter of this agreement. There are no written or oral understandings directly or indirectly related to this agreement that are not set forth herein.”
• No Verbal Modifications: “No change can be made to this agreement other than in writing and signed by both parties.”

Procuring $70,000,000 in Sales

With the signed written agreement in place, Byron then went to work generating business on behalf of DCA. Between 2012 and 2019, Byron generated more than $70 million of new sales for DCA primarily to one customer: a large, well-known, publicly traded telecommunications carrier that needed to construct an expanding small cell wireless network. Suddenly, DCA was flush with many millions of dollars of cash as its revenues and profits soared, it had numerous major projects for the new large corporate customer that Byron procured for it. DCA was finally becoming the significant and valuable telecommunications provider that Karl and Sam had always wanted.

Unfortunately, DCA failed to pay Byron sales commission owing under the agreement. Rather than paying sales commissions to Byron, DCA purchased equipment such as heavy machinery and other items used in construction small cell towers, it bought a building, increased personnel, and even invested millions of dollars into its own Fidelity investment brokerage accounts. Of course, DCA also accelerated loan repayments to Karl and Sam, and increased their salaries, as well.

In the early years, Karl told Byron to wait for commissions owing until DCA had enough money in the pipeline, claiming it needed the funds to finance operations and growth. Later, Karl told Byron the commissions owing were just too much, and DCA would pay Byron something, but it needed to negotiate a payment plan with deferred payment amounts over time. From time to time, DCA would sporadically pay partial commission payments to Byron or to his LLC, but never anywhere close to amounts owed under the agreement. On more than $70 million in commissionable sales, DCA owed Byron over $12 million in sales commissions pursuant to the agreement, yet it paid him less than $300,000 in sales commissions.

Byron and his wife grew increasingly frustrated. They were stuck: while Byron needed to remain working and generating sales for DCA in order to have any hope of being paid, his continued work generated more profits for DCA and Karl to enjoy, while DCA refused to ever pay Byron anywhere near the actual amounts that were owing under the agreement.

Tensions rose. Byron, in his own interesting ways of communicating, repeatedly demanded commission payments. Karl repeatedly acknowledged DCA’s obligations to Byron, promised to pay Byron and even added Byron to DCA’s payroll, and continued to make sporadic partial payments, but never committed to paying Byron the millions of dollars owing.

The Lawsuit

In late 2018, Byron called me. In December of 2018, we filed our lawsuit in federal district court in Detroit. Less than two months later, DCA terminated Byron.

DCA argued (really its only defense) that, because of the passage of time and Byron’s demands for an agreement from DCA about when he would be paid all amounts owing under the agreement, that Byron had somehow “waived” the agreement and his rights under it. DCA also argued that Byron had somehow agreed to forfeit his rights under the agreement and became an employee of DCA. (DCA made these arguments even though we filed the case within the statute of limitations, and despite the clear language in the agreement that any modification to the agreement had to be in a writing signed by the parties.)

Waiver is an affirmative defense under Federal Rules of Civil Procedure 8(c). The party asserting the affirmative defense of waiver bears the burden of proving it. DCA failed to assert waiver as an affirmative defense in our case. In fact, DCA never asserted waiver until the summary judgment phase of the case, over a year after we filed the case.

Even if it had timely asserted the waiver defense, waiver requires “clear and convincing evidence” of conduct that “must overcome not only the substantive portions of the previous contract allegedly amended, but also the parties’ express statements regarding their own ground rules for modification or waiver as reflected in any restrictive amendment clauses.” Quality Products and Concepts Co. v. Nagel Precision, Inc., 469 Mich. 362, 374–75; 666 N.W.2d 251 (2003). “[I]n civil cases, the clear and convincing evidence standard is typically thought to be the highest level that can be required.” In re Martin, 450 Mich. 204, 227; 538 N.W.2d 399 (1995).

Clear and convincing evidence is that which “produce[s] in the mind of a trier of fact a firm belief or conviction as to the truth of the allegations sought to be established, evidence so clear, direct and weighty and convincing as to enable [the trier of fact] to come to a clear conviction, without hesitancy, of the truth of the precise facts in issue.” Kefgen v. Davidson, 241 Mich.App. 611, 625; 617 N.W.2d 351 (2000) (citations omitted).

Both parties moved for summary judgment after the close of discovery. Those motions are pending the court’s decisions. I’ll supplement this article when the court decides those motions.

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